Job creation estimates made by government watchdog are ‘optimistic’, warns CIPD

The estimate from the government’s independent spending watchdog that the private sector will create two million jobs over the next five years is “optimistic”, the Chartered Institute of Personnel and Development (CIPD) has warned.

The Office for Budget Responsibility (OBR) yesterday predicted that UK employment would be 29.97 million by 2014-15 – 50,000 fewer than its previous estimate, which was made before last month’s austerity Budget.

The OBR forecast that about 600,000 jobs will be lost in the public sector by 2016. It also predicted that the private sector will create an extra 2 million jobs over the next five years.

Yesterday, a Treasury document leaked to the Guardian said that Chancellor George Osborne’s budget will result in the loss of up to 1.3 million jobs across the economy over the next five years.

John Philpott, chief economic adviser at the CIPD, said that while the OBR’s forecast for public sector job losses was “realistic” and close to the CIPD’s own prediction of 725,000, the OBR’s estimate for employment growth looked “optimistic”.

A “dynamic economy” with almost 30 million people in work, which in a normal year is capable of more than making up for the 500,000 jobs lost as a result of annual improvements in labour productivity, should be able to cope with a period of large-scale public sector downsizing without this resulting in higher unemployment, Philpott said.

However, he warned that the conditions necessary for such a favourable outcome are at present “far from self-evident and unlikely to emerge simply as a consequence of swifter and tougher action to reduce the deficit”.

“On the contrary, historical precedent would suggest that the application of stronger fiscal discipline to an economy in too weak a state to bear it will both slow the rate of economic growth and stem the pace of job creation,” Philpott said.

He added that there was a “distinct possibility” that unemployment could rise to three million over the next two years.